(Adds analyst comment)
SAN JUAN, Puerto Rico/NEW YORK Nov 14 (Reuters) - Puerto Rico is in talks with four bond insurers to insure at least part of up to $2.9 billion in bonds the troubled U.S. commonwealth wants to issue later this year, the president of the Government Development Bank (GDB) said on Friday.
The move would allow Puerto Rico to access a far deeper pool of capital in the $3.7 trillion municipal bond market than the relatively small group of hedge funds that bought $3.5 billion of its debt in March. It would also significantly lower Puerto Rico’s heavy borrowing costs.
Puerto Rico wants to refinance a $2.2 billion loan the GDB made to the island’s Highways and Transportation Authority (HTA) in a bid to shore up the commonwealth’s precarious finances and buy it time to turn around its flagging economy.
In order to complete the sale, Puerto Rico needs to pass legislation to increase a tax on oil by $6.25 per barrel to $15.50. That would generate $178 million in revenue to back the bonds. The bonds are expected to be issued by the Puerto Rico Infrastructure Financing Authority (PRIFA).
“The four insurance companies that insure HTA bonds saw the legislation and commented on it, and part of those discussions were whether we could insure a part of the transaction, not necessarily the whole thing, to get better rates,” GDB President Melba Acosta-Febo said.
Two financial industry sources in San Juan said Puerto Rico believes the insured bonds would get an A-rating, much higher than the island’s current BB junk rating.
Acosta-Febo did not name the insurers, but the GDB said last month it discussed the legislation with Assured Guaranty Ltd , Ambac Financial Group Inc, National Public Finance Guarantee Corp and FGIC Corp. Those discussions had been “constructive,” it said.
A spokesman for MBIA Inc, which owns National Public Finance Guarantee, declined to comment. The other three insurance firms did not return requests for comment.
Insuring the bonds could also benefit insurers by preventing a default at the HTA, said Triet Nguyen, an municipal bond analyst at Axios Advisors.
The four insurers back over 70 percent of certain HTA revenue bonds. The HTA has over $7 billion in total debt, including lines of credit. Insurers are already facing possible losses at the Puerto Rico Electic Power Authority. (Reporting by Reuters in San Juan and Edward Krudy in New York; Editing by Tom Brown and Andre Grenon)